- Bitwise is a financial services firm which provides diversified exposure to Bitcoin and Bitcoin products.
- According to a filing with the Securities and Exchange Commission, Bitwise intends to launch an exchange-traded fund.
- The company will employ several strategies to offer secure exposure to its clients and shareholders.
What did Bitwise announce?
Bitwise has filed a prospectus of the Bitcoin Strategy Fund with the Securities and Exchange Commission, the Financial Regulator of the United States of America. The SEC can take up to 45 days to pass a decision in regards to the approval of the exchange-traded fund.
The company has not yet disclosed the percentage of management and service fee it will levy on the investments received. The Portfolio Turnover cost which is charged on the purchase and sale of assets will be levied separately, independent of the management and service fee. Thus, investors should consider the Portfolio Turnover cost before investing in the fund as a higher cost may result in less profits and more taxes in the brokerage account.
What is Bitwise’s investment strategy?
Bitwise’s newly intended exchange-traded fund seeks to provide long-term capital appreciation through gains from Bitcoin to its investors and shareholders. The fund intends to capitalize on the future contracts to profit off of volatile movements in Bitcoin throughout the year. However, the prospectus clearly mentions that it will not provide the shareholders with direct access to Bitcoin.
Instead, the company will provide indirect access to investors by investing in Bitcoin futures contracts through commodity-settled exchanges registered with the CFTC. It may also invest in pooled investment instruments such as overseas funds and others to provide safe exposure to its investors. The fund will also invest in government securities and money markets which serve as liquidity to the cash settled Bitcoin futures. These investments will also serve as collateral securities for the fund’s primary investments in Bitcoin products.
The fund does not intend on imitating any index or broad market. It will allocate funds to investments according to a predefined strategy formulated by experts and crypto analysts of the firm.
What are the principal risks?
Like any other financial product, Bitwise’s Bitcoin Strategy Fund comes with certain risks. The investors should consider such risks before investing in the fund. These risks include:
- The fund will be actively managed by a fund manager. However, the investment objective may not be met due to errors on the part of the manager.
- The fund intends to invest in Bitcoin futures contracts which are highly volatile instruments, thus adding the risk of loss.
- The manager’s assumptions about the future trend, inflation rate and interest rates may be wrong, leading to a potential loss.
- Bitcoin futures contract derive its value from Bitcoin. However, movements in Bitcoin are reflected with adverse movements in the futures contracts which add risks.
- The Bitcoin and Bitcoin futures market is not regulated by the government or the Securities and Exchange Commission. In absence of regulation, risk is extra.